Macroeconomics: "16.1: How the Foreign Exchange Market Works"

Read this section about the exchange of currencies. Exchange rates relate the price of a country's own currency compared to the price of another country's currency mainly for the purpose of international trade. Trading partners need to convert their own currency into that of the country from which imports originate. For example, when the United States imports vehicles from Japan, the United States pays for them in Yen and needs to purchase that currency using US Dollars. In essence, the demand for and supply of currencies determine the exchange rate.